Market Analysis – 26101503 – Gasoline engines

Market Analysis Brief: Gasoline Engines (UNSPSC 26101503)

1. Executive Summary

The global gasoline engine market is mature, with an estimated $25.8B total addressable market (TAM) in 2024, but is entering a period of structural decline, with a projected 3-year CAGR of -1.8%. This contraction is driven by stringent emissions regulations and the rapid adoption of battery-electric alternatives, particularly in consumer and professional equipment segments. The single greatest threat is technology obsolescence, accelerated by regulatory mandates like California's ban on small off-road engines (SORE). The primary opportunity lies in securing favorable end-of-life production terms and strategically pivoting spend towards next-generation electric powertrains.

2. Market Size & Growth

The global market for gasoline engines is projected to experience a negative compound annual growth rate (CAGR) as electrification gains momentum across key end-use applications. The largest geographic markets remain Asia-Pacific, driven by demand for small engines in agricultural and two-wheeler applications, followed by North America and Europe, where the outdoor power equipment sector is a primary consumer.

Top 3 Geographic Markets: 1. Asia-Pacific: ~45% market share 2. North America: ~28% market share 3. Europe: ~18% market share

3. Key Drivers & Constraints

1. Regulatory Pressure (Constraint): Increasingly stringent emissions standards (e.g., EPA Phase 3, EU Stage V) are the primary market constraint. State-level actions, such as California's 2024 ban on new SORE sales, are accelerating the transition away from gasoline engines.
2. Technology Shift to Electrification (Constraint): Advances in battery energy density, lower costs, and improved performance of electric motors are making battery-electric equipment a viable and often preferred alternative, eroding the gasoline engine's market share.
3. Demand in Developing Economies (Driver): In regions with less-developed electrical infrastructure, gasoline engines remain critical for power generation, agriculture (pumps, tillers), and low-cost mobility, providing a floor for near-term demand.
4. Raw Material Volatility (Constraint): Pricing is highly sensitive to fluctuations in key industrial metals like aluminum, steel, and copper, creating significant cost volatility for buyers.
5. Outdoor Power Equipment (OPE) Market (Driver): The large installed base of OPE (lawnmowers, generators, pressure washers) ensures a continued, albeit declining, demand for both new engines and a significant aftermarket for replacement parts.

4. Competitive Landscape

Barriers to entry are high, defined by extensive capital investment in manufacturing, established global supply chains, brand reputation for reliability, and significant R&D expenditure required to meet evolving emissions regulations.

⮕ Tier 1 Leaders * Honda Motor Co., Ltd.: Differentiated by a premium brand perception, reputation for reliability, and strong R&D in clean engine technology. * Briggs & Stratton, LLC: Dominant in the North American residential market through mass-market scale, extensive service networks, and OEM relationships. * Kohler Co.: Strong position in the premium residential and commercial-grade engine market, known for durability and performance. * Yamaha Motor Co., Ltd.: Leader in specialized applications, including generators, marine, and recreational vehicles, with a focus on high power-to-weight ratios.

⮕ Emerging/Niche Players * Kawasaki Heavy Industries: Strong niche in the professional landscaping market with high-performance commercial engines. * Loncin Holdings, Ltd.: A leading Chinese manufacturer rapidly gaining share through competitive pricing and partnerships with Western brands. * Subaru (formerly) / Yamaha (acquirer): Yamaha acquired Subaru's industrial engine business, consolidating a key player in the general-purpose engine category. * Generac Power Systems: Primarily an end-product OEM, but a major vertically integrated engine manufacturer for its own generator products.

5. Pricing Mechanics

The typical price build-up for a gasoline engine is dominated by direct material costs, which can account for 40-55% of the total. This is followed by manufacturing overhead and labor (20-25%), R&D and SG&A (10-15%), logistics (5-10%), and supplier margin (5-10%). The cost of emissions-related components, such as catalytic converters and electronic fuel injection (EFI) systems, has become a significant and growing portion of the bill of materials.

Price volatility is primarily driven by commodity inputs. Procurement should monitor these three elements closely: * Aluminum (Engine Block, Pistons): Price has shown significant volatility, with an est. +8% increase over the last 12 months due to energy costs and supply constraints. [Source - LME, May 2024] * Cold-Rolled Steel (Crankshaft, Frame): Prices have moderated from 2022 highs but remain sensitive to global industrial demand, with an est. -12% change over the last 12 months. * Logistics (Ocean/Inland Freight): Container shipping rates from Asia have increased an est. +30% in the past year, impacting landed cost significantly.

6. Recent Trends & Innovation

• Adoption of Electronic Fuel Injection (EFI): Suppliers are increasingly deploying EFI systems, even on single-cylinder engines, to meet emissions targets and improve fuel efficiency. This adds $30-$60 per unit cost but is becoming standard on premium models. (Q4 2023)
• Regulatory Acceleration: California's ban on the sale of new small off-road engines (SORE), effective January 1, 2024, has forced OEMs to cease sales of most new gasoline-powered outdoor equipment in the state, creating a precedent other states may follow.
• Hybridization as a Bridge Technology: Development of hybrid systems that pair a small gasoline engine-generator with a battery pack is emerging in applications where long runtime is critical, such as in professional landscaping equipment and portable generators. (Q1 2024)
• Supplier Consolidation: The acquisition of Subaru's industrial engine assets by Yamaha (2017) and the bankruptcy/acquisition of Briggs & Stratton by KPS Capital Partners (2020) signal a market undergoing consolidation in the face of declining long-term demand.

7. Supplier Landscape

8. Regional Focus: North Carolina (USA)

North Carolina presents a strategic location for sourcing gasoline engines. Demand is robust, driven by a large residential population and a significant professional landscaping industry. The state benefits from the local manufacturing presence of key suppliers, most notably Honda Power Equipment's major production facility in Swepsonville, NC, which produces millions of general-purpose engines annually. This localized capacity offers significant advantages in reducing freight costs, shortening lead times, and mitigating geopolitical risks associated with trans-pacific supply chains. While the state's manufacturing labor market is tight, its competitive corporate tax structure and proximity to major logistics hubs (ports of Wilmington and Charleston) make it an advantageous sourcing point.

9. Risk Outlook

10. Actionable Sourcing Recommendations

1. Implement a Dual-Path Sourcing Strategy. Secure 24-month fixed-price agreements for high-volume legacy gasoline engines to ensure supply continuity for existing product lines. Simultaneously, issue RFIs for complete battery-electric powertrain systems to identify and qualify 2-3 strategic partners for next-generation product development, de-risking the inevitable technology transition.

2. Leverage Regional Production for Cost & Risk Mitigation. Consolidate spend with suppliers having a strong manufacturing presence in the Southeast USA (e.g., Honda in NC). This reduces freight costs and lead times. Negotiate indexed pricing clauses tied to COMEX/LME for aluminum and steel to gain transparency and hedge against raw material volatility.